Wedding announcements pending between Old & New Finance Tribes: Bitcoin in an ETF gown!



In many countries weddings announcements in newspapers are still a necessity and in others they have become a tradition or have moved to social media.  Over the next month or so, in the US there are three pending wedding announcements. The two ones upcoming on March 11 and March 31st, are the more crucial ones.

If you are hoping that this post is some sort analysis of whether the wedding announcement event is already priced into Bitcoin’s price or not; then you are in the wrong place. I can however, recommend this scenario analysis Estimates on the price impact and capital inflows of a Bitcoin ETF.

In this post, I want to highlight facts around the pending weddings, because these are innovative ETFs in dynamic market conditions and there is no appropriate comparison really. Some have drawn conclusions from the approval process of the first Gold ETF (GLD) but in my opinion, it really doesn’t serve any purpose.

Also, because it so peculiar to be witnessing the potential of packaging a decentralized asset into a conventional wrapper like the ETF. We are moving towards a world that for every asset there will be an ETF, but to see Bitcoin wearing an ETF gown (wrapper) is awkward.

Dates and pending wedding announcements

March 11 – The Winklevoss Bitcoin ETF, $COIN

March 30 – The SolidX bitcoin ETF

Thereafter – An ETF wrapper of the GBTC Grayscale Bitcoin Trust, which already trades on the OTC market (like a closed-end fund)

The Winklevoss ETF journey

The Wilkenvoss brothers filed to the SEC 3.5 yrs ago for approval of an ETF linked to Bitcoin. They have also constructed an index the Winkdex to track the price of Bitcoin.

WinkDex is calculated by blending the trading prices in U.S. dollars for the top three (by volume) qualified Bitcoin Exchanges during the previous two hour period using a volume-weighted exponential moving average. This proprietary formula weights transactions proportionally by volume as well as exponentially by time to give greater weight both to higher volume transactions and more recent transactions.

The twin brothers first filed for a listing on the NASDAQ stock exchange in July 2013, this is exactly the time that M-pesa in Kenya linked with Bictoin. The filing was for 1million shares and each share would be worth about 1/5 the Bitcoin price. At the time, Bitcoin was trading around $90. Therefore, the original filing would be wrapping up in an ETF roughly 200,000 Bitcoins. The max offer was $65million.

Since then, there have been 6 amendments that have addressed various issues of concern.

Naturally, one of the first concerns were around safety and consumer protection from hacking. This financial structure has not been targeting retail investors but rather institutional investors that are subject to regulatory constraints in terms of the kind of financial structures they can hold. Right now only the XBT Tracker comes close (EUR, USD, SEK versions). It is traded on the German and Swiss exchange but is not ideal because the backing up of the shares is not one-to-one with bitcoin.

Retail investors are better off doing their own research and investing directly into Bitcoin via some service a la Coinbase, and avoiding the additional costs of an ETF financial structure of this type.

The Winklevoss Bitcoin ETF carries a kind of insurance called the Fidelity Bond, since October 2015. This is a requirement in the state of NY where the custodian of the ETF, Gemini is registered. The fidelity bond coverage includes, among other things, insurance against employee theft, computer fraud, and funds transfer fraud. Gemini is a New York State-chartered trust company that is owned by the twins and acts both as a custodian and as a bitcoin exchange.

State Street was chosen in Oct. 2016 as the administrator of the ETF that will oversee pricing and reporting.

During the 3.5 yrs journey and the six amendments, the Twin brothers decided to change the listing from NASDAQ to BATS. Just the last two months there have been two very significant amendments to the original filing that need to be understood: a) the size of the deal has been substantially increased, b) a hard fork clause has been decided.

The size of the deal is now 10 million shares (tenfold increase), $100million (instead of $65million) and the max price offer that was $65 has been lowered to $10! If approved and fully subscribed, the ETF structure would wrapping up roughly 80,000 bitcoins (much less than originally filed for).

In the prospect of a network split following a software hard fork, the creation and redemption of the ETF will be suspended during the first 48hours. This maybe fine-print (maybe not) but it is important not to miss. Thereafter,

the $Coin ETF (the administrator in consultation with the custodian) will default to using the chain with the most hashing power, but will reserve the right to decide otherwise.

In other words, the ETF will choose the the chain (after a split) which enjoys “the greatest cumulative computation difficulty for the 48 hour period following a given hard fork.”

“If the Custodian, in consultation with the Sponsor, is unable to make a conclusive determination about which Bitcoin Network has the greatest cumulative computational difficulty after forty-eight (48) hours, or determines in good faith that this is not a reasonable criterion upon which to make a determination, the Custodian will support the Bitcoin Network which it deems in good faith is most likely to be supported by a greater number of users and miners.” Source

Needless to say that this recent amendment is controversial already in the crypto communities.

The differences with the rest of the ETFs

The SolidX bitcoin ETF structure is similar to the Winklevoss and mainly differs by offering classic insurance in case of theft. Another difference is that while the Winklevoss ETF relies solely on its own bitcoin exchange, the Gemini, for price discovery; the SolidX ETF uses multiple exchanges.

The third proposal outstanding, the GBTC Grayscale Bitcoin Trust, differs in that it is already trading over the counter. We have referenced ARKInvest in multiple posts since they are innovating in investment management, and are the first public managers to invest in bitcoin via GBTC.  It has been trading much like a closed-end fund and therefore (at a discount or a premium). Their ETF filing hopefully, will alleviate this discrepancy.

Related Wilderness Tips

For traders that have an itch, you can bet on the probability of approval or disapproval of the Winklevoss ETF which is now at 52% (up from 30% a month ago). Check COIN_BH17 on the Bitnex exchange.

For the Winklevoss brothers:

If BATs doesn’t get the honor to list the first Bitcoin ETF, maybe the Winklevoss brothers should consider switching to SIX and seeking approval from FINMA instead. Over the past few days, we have seen the announcement of the Crypto-Valley association headed by one of the best, Oliver Bussmann; and chalet and apartment rentals by VisionApartments accepting payments in bitcoin.

For retail investors that have missed on the bitcoin rally because they didn’t want to do the homework of opening a digital wallet, understanding cold storage, and didn’t want to invest through ARKInvest either; these ETFs when approved are not the solution to your indecision. Go get a wallet.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.



One comment

  1. I agree with the conclusion. Storing gold has a real cost. Getting a secure wallet takes just a bit of research.

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